Global mayhem continued as market opened the day on a weaker note. Major backdrop was from the Asian markets as Hang Seng (-4%) & Nikkei (-3.3%) hit the investors sentiments as the Indian indices traded in red. Investors have been nervously sitting on higher worries about the global weakness which hit the markets hard. As every hour of trade passed by, weakness was seen across the board as selling activity intensified and index heavyweights showed no signs of coming up. Midcaps and Small caps were also under selling pressure as it plunged by 5% and 5.6% respectively. There was clear one way direction in the trading sessions as the market was headed southward with little recovery made at the end as buying was seen at lower levels. All BSE sectoral indices ended negative with many of them going down by almost 3%.

The main reason for global gloominess is that the Yen has strengthened against major currencies and hitting a three-month high against the Dollar which made edgy investors unloaded risky carry trades. The Nikkei average fell 3.34% marking its biggest one-day tumble in nine months and a new low for 2007, as investors continued to dump shares in exporting companies following the Yen's rise. The Hong Kong?s Hang Seng Index tumbled 777.13 (4%). Taiwan market was also down by almost 3.74% as the provisional figures of FII being sellers of almost $591 mn. Asian Indices ended in Red while the European markets were trading with sharp losses.

Major steel producers have rolled back the recent price hike of TMT bars and galvanised steel, while the hike was lower by 50% in case of HR coils. The price of HR coils which was earlier increased by Rs 1,000 per tonne has now been reduced to Rs 500 per tonne. The move is on the back of the government's request to curb inflation. Steel producers had earlier hiked prices in the beginning of the month as a routine activity based on demand and supply factors. Stocks in steel sector ended in red with major losses to SAIL as it ended down by 9%.

ACC slipped by almost 5% after its February shipments fell 7.2% to 1.42 million tonnes year-on-year basis. The production in February 2007 declined to 1.45 million tonnes, down from 1.54 million tonnes in February 2006. Production was hurt due to technical modifications at three of its plants.

Titan industry plans to make UAE as its major export hub. Company also plans to use UAE as its base to reach various overseas markets. Company is well placed in the Indian market with Tanishq accounting for almost 45% of the branded Jewellery market. This branded jewellery market still is very minuscule accounting for less than 4%. Exports contribute 6% of the revenues at present. However key is the Indian Market itself and probably Indians settled abroad who would find comfort in the brand for now. We are positive on the business. The stock ended down by 6%.

ICICI Bank has decided to consider transfer of investments in four subsidiaries in insurance and mutual fund businesses to a wholly-owned subsidiary, which also may lead to the eventual listing of the holding company. ICICI Bank reported that investments in the four subsidiaries may be transferred to ICICI Holdings, the new subsidiary to be formed. ICICI Bank also plans to transfer its investments in ICICI Prudential Life Insurance Co., ICICI Lombard General Insurance, Prudential ICICI Asset Management Co. and Prudential ICICI Trust to ICICI Holdings. ICICI Holdings will consider a public listing of shares by December 2007, to meet a part of its capital requirements for its insurance ventures. However, ICICI Bank intends to retain its majority ownership in the new company. This is value unlocking. These holdings were valued at Rs 200 per share.

Technically Speaking: Markets traded weak as it headed for a southward direction. Sensex touched intraday high of 12716 and low of 12344. Market turnover stood at Rs 3989 cr. Overall breadth was in favor of Decliners, where the Advance to Decliners ratio stood at 1:11. Sensex has formed a running gap pattern. If we fail to cover today's gap in the coming few days, then the speed of fall could increase. Supports for sensex lies at 12300, 11900 and 11460. Resistance is seen at 12800.

A steep fall in the Asian markets triggered heavy selling that saw the Sensex shed 471 points for the day.

The Sensex plunged in early trades on weak global markets. The sell-off saw the Sensex slip to a five-month low of 12,344, down 542 points. The market remained range-bound with a negative bias in the afternoon, while a few cement stocks stayed in positive territory on moderate buying support. The key Asian benchmark index--the Nikkei--closed with losses of 3.34% and witnessed its biggest one-day fall in nine months. The Hang Sang, the Straits Times and the Jakarta indices closed with losses of 3-4% each. The fall in the Asian indices was on concern that the US economy may have been slowing down at a faster pace than predicted. This had a negative impact on the domestic market. The Sensex finally ended the session at 12415, down 471 points, while the Nifty shed 150 points and closed at 3576.

All the sectoral indices were hammered on relentless selling pressure. The BSE CG Index dropped 5.79% at 8218, the BSE Auto Index lost 5.31% at 4750 and the BSE Metal Index shed 5.19% at 7986. The other sectoral indices shed around 3-4% each.

The broader market was extremely weak. Of the 2,611 stocks traded on the BSE, 2,363 stocks declined, 220 stocks advanced and 28 stocks ended unchanged. Except Gujarat Ambuja all the stocks in the Sensex basket ended in the red. Among the major losers Ranbaxy tanked 8.18% at Rs319, Maruti Udyog tumbled 7.67% at Rs770, Wipro plunged 7.19% at Rs532, Dr Reddy's slumped 6.45% at Rs618, Tata Steel fell 6.10% at Rs416, L&T shed 6.05% at Rs1,376, Reliance Communications dropped 5.25% at Rs394, Reliance Industries slipped 5.11% at Rs1,250 and Tata Motors was down 5.10% at Rs735. The other front-line stocks were down 3-5% each.

My friend Sanjiv Pandiya, who writes some of the most interesting stuff that is being written nowadays about investing, is fond of using the word fool. But he doesn't do it the normal way - the way, say, a school teacher does. Instead, he imbues it with an enhanced meaning that makes it easier to understand the markets. For example, I remember him once saying that banks were the default suppliers of foolishness in the markets. This idea of foolishness in this special sense makes it easier to understand why markets behave the way they do. What exactly is this foolishness? I think it's best defined as what is not.

We've all heard of the Efficient Market Hypothesis, which says that financial markets are 'efficient', meaning that the prices of stocks (or other securities) reflect all known information and therefore incorporate the collective beliefs of all investors about the future. For the hypothesis to be correct, people must have equal access to all information and have rational expectations.

I think the kind of foolishness we are talking about is everything that is the opposite of all those factors that make the market efficient. It's a bit like heat and cold in physics. You could say that the flow of knowledge and rational expectations keep the markets efficient or you could say that it's the flow of foolishness that keeps the markets inefficient. Isn't that a problem? No, it isn't, most certainly not. Inefficiency is what keeps the stock market interesting and profitable. If the markets were as efficient as the hypothesis says, then those who can identify and mark out foolishness would make less money.

Therefore, a steady and limitless supply of foolishness is the greatest of assets. Foolishness is the life blood of the stock market. Without foolishness, we would be nowhere. Instead of worrying about how well companies are doing and how much the economy is growing, smart stock investors should instead worry about whether an adequate supply of foolishness will be maintained. I'm happy to inform readers that if present trends continue, they have nothing to fear.

Over the last one month, I have been roaming around this great country and have visited 17 cities and have met and talked to investors in each. Although most of the people I met had disappointingly low foolishness levels, in each location there were at least some who showed great promise and gave me hope that the supply of foolishness to the stock markets is in safe hands.

It'll take just a few examples for me to convince you that my optimism about the future of foolishness is well-founded. One crucially important observation I made was that the most promising suppliers of foolishness use a different calendar than the rest of the country. I met people who thought the term 'long-term' in long-term investing meant six months. I also met those who thought it meant three months and some who thought it meant one month. These are not isolated examples, there are a large number of people in this country who use such calendars. However, the definition of long-term that gave me most hope was, "When there are profits it's short-term, when there are losses it's long-term".

Mirroring weakness in the world markets, the Sensex opened with a negative gap of 169 points at 12,717, and continued to drift lower during the day. The selling pressure was so intense that the index tumbled to a low of 12,344 - down 542 points - in early morning trades.

The index, thereafter, attempted a feeble recovery - only to be met with unabated selling at every rise. Heavyweights, in particular, bore the brunt of the selling today. The Sensex finally ended with a hefty loss of 471 points (3.7%) at 12,415.

There was carnage across the Asian markets today - the Hang Seng shed 777 points (4%) to 18,665, and the Nikkei plunged 576 points (3.3%).

The week started on an unpleasant note for the stock market, whose benchmark Sensex on Monday tanked 471 points on fears of recession in the world economy and sustained FII pull out.

This was the fifth biggest point-wise fall in the history of the 30-share Sensex, which closed down 3.66 per cent at 12,415.04 in an otherwise volatile trading.

The turmoil on bourses began with a nearly nine per cent steep fall in Chinese market on February 27 that triggered a global meltdown inducing fears of a slowdown in the world economy and sustained FII pull out from equity markets.

The benchmark Sensex and the Nifty had lost more than 5.0 per cent during last week's carnage.

Tracking extremely weak Asian trend, the Sensex started the week with a wide gap at 12,716.85 from previous close of 12,886.13 and tumbled to a five-month low of 12,344.44, a loss of 542 points within the initial 30 minutes of trading. The losses were cu t to 471 points at close.

Similarly, the broader S&P CNX Nifty of the National Stock Exchange (NSE) crashed by 150.25 points or 4.03 per cent to 3,576.50 from previous close of 3,726.75.

Key indices in Hong Kong, Japan, South Korea, Singapore and Taiwan ended down 2.5 per cent to 4.0 per cent. The Dow Jones industrial average ended 120.24 points down at 12,114.10 and the Nasdaq Comp Index 36.21 points at 2,368.00 on Friday.

Brokers said Foreign Institutional Investors (FIIs) seem to be pulling out to invest in countries like Japan which now could provide higher yields due to strengthening yen.

The meltdown in stock markets is considered to be a major jolt to the world economy while a section of brokers felt that the fall offered attractive levels for investments. FIIs pulled out about 3,693 crore (including Friday's provisional data) during la st week.

The market breadth remained extremely negative as 2,363 counters registered losses while only 220 closed with gains on a day when trading was extended till 4.15 p.m. due to sun outage. Trading on the bourses has been extended till 4.15 p.m. Trading on Ma rch 19 too would close at the same time as today.

The broad-based BSE-100 index tumbled by 263.27 points to 6,223.12 from previous close of 6,486.39.

The BSE-200 index and the Dollex-200 were quoted sharply down at 1,471.65 and 549.23 at close compared to last close of 1,535.92 and 577.10 respectively. The BSE-500 Index slumped by 210.62 points to 4,696.06 against previous close of 4,906.68 and the Do llex-30 ended lower at 2,284.85 from 2,387.77.

The market remained entrenched in the red throughout the session. Heavy selling continued for the entire day, as markets across the globe were in a state of meltdown. Experts opine that one of the reasons for the current sharp correction is due to Yen carry-trade unwinding.

The 30-share BSE Sensex settled with a loss of 471.09 points (3.66%), at 12,415.04. It had opened weak, at 12,716.85, and plunged to a low of 12,344.44 as selling intensified. This is also the lowest level in nearly five months since 12 October 2006.

The market-breadth, which reflects the overall health of the market, has turned weak in the past few days, since the correction set in and a sell-off gripped small-cap and mid-cap shares.

It has been observed that in case of sharp corrections, shares from this segment are more likely to be sold compared their large-cap peers.

The BSE Mid-Cap Index shed 4.97%, while the BSE Small-Cap Index lost 5.64%. There were over 10 losers for every single gainer on BSE. Just 218 shares advanced compared to 2,391 that declined. Only 25 scrips remained unchanged.

The small-cap and mid-cap shares have already retreated from their highs of early-February 2007. From a peak of 6,186.86 on 7 February 2007, the BSE Mid-Cap Index had shed 11.6% to 5,466.24 by 2 March 2007. From 7,697.81 on 7 February 2007, the BSE Small-Cap Index had tumbled 13.6% to 6,645.81 by 2 March 2007.

The market reeled under the wrath of investors. A host of factors including lack of inflows at higher levels, the surprise CRR-hike, high valuations, rising inflation and rising interest rates, fears of an earnings slowdown in the coming quarters kept the sentiment edgy all along. The defeat of the Congress in Uttarakhand and Punjab, weak global markets and profit-taking at higher levels have also plagued the market lately.

Ever since the Sensex struck an all-time high of 14,723.88 on 9 February 2007, it has corrected a sharp 1,838 points (14.27%), to 12,886.13 by 2 March 2007 - in less than a month's time. Caution was also partly due to worries of a possible interest rate hike by the Bank of Japan (BoJ), which came true later. Japan's central bank raised the benchmark lending rates in the country to 0.50% on 22 February 2007.

Local bourses are under pressure as global markets, which too have been on a downtrend since the last few days, were sharply jolted today as well. The Nikkei average fell 3.34% on Monday, marking its biggest one-day tumble in nine months, and a new low for 2007, as investors continued to dump shares in exporters such as Toyota Motor Corp and Canon Inc following the yen's rise.

The sell-off pushed the Nikkei average below the psychologically important 17,000-level for the first time in nearly two months, and left investors wistfully awaiting a rebound. The Nikkei tumbled 575.68 points, to 16,642.25, its lowest closing since December and its biggest one-day percentage loss since June 2006.

The Hong Kong’s Hang Seng Index tumbled 777.13 (4%), to 18,664.88.

All European and Asia/Pacific markets were trading with sharp losses.

All constituents of the Sensex, with the exception of Gujarat Ambuja Cements (up 0.35% to Rs 110) and Grasim (up 0.31% to Rs 2105), were trading with losses.

Indian bulk drugs major Ranbaxy laboratories was the top loser, down 8.15% to Rs 319.10, on a volume of 4.59 lakh shares.

Cap maker Maruti Udyog declined 6.11% to Rs 783, on a volume of 3.06 lakh shares. It had slipped to a low of Rs 781, the scrip's low being Rs 769.

ACC slipped 5.08% to Rs 812.10, after its February shipments fell 7.2% to 1.42 million tonnes year-on-year. The production in February 2007 declined to 1.45 million tonnes, down from 1.54 million tonnes in February 2006. Production was hurt due to technical modifications at three of its plants.

Index heavyweight Reliance Industries (RIL) was down 5.03% to Rs 1251.15. A huge 18.50 lakh shares had changed hands in the heavyweight counter. The RIL scrip had also slipped to an intra-day low of Rs 1250.

Frontline IT stocks were sold after some negative announcements in Union Budget 2007-08. The BSE IT index lost 4.52%.

The Union Government has extended minimum alternate tax (MAT) to income in respect of which deduction has been claimed under sections 10A and 10B, to the IT sector. Currently, tax exemption under section 10A is available for units set up in software technology parks (STP). The benefit under this sector expires in 2009. As a result, effective tax rates for IT companies will go up and impact earnings. However, companies paying tax outside India will get some respite on account of double taxation avoidance treaty. Such firms can set off the tax paid outside India against MAT.

Moreover, the government has brought employee stock options under the fringe benefit tax (FBT). FBT will now be charged on the difference between market price and exercise price of the option. This will, consequently, increase the tax outgo of companies that have an ESOP scheme.

ICICI Bank lost 3.37% to Rs 818, even as it decided to consider transfer of investments in four subsidiaries in insurance and mutual fund businesses to a wholly-owned subsidiary, which also may lead to the eventual listing of the holding company. ICICI Bank said on Saturday (3 March) investments in the four subsidiaries may be transferred to ICICI Holdings, the new subsidiary to be formed. ICICI Bank also informed that it may consider listing the shares of ICICI Holdings next year.

ICICI Holdings will consider a public listing of shares by December 2007, to meet a part of its capital requirements for its insurance ventures. However, ICICI Bank intends to retain its majority ownership in the new company.

Shares of top-steel producers declined by 6 - 9% after producers today decided to roll-back a Rs 300 - Rs 700 per tonne price hike of reinforced steel. The BSE Metal Index was down 4.6%, to close at 8,036.49.

The partial roll-back of the hike came after government held talks with top steel makers - Steel Authority of India (Sail) and Tata Steel. Prices of reinforced steel, used for constructing houses, were raised last Thursday (1 March 2007) to align them more closely with world prices.

Producers have also agreed to cut prices of hot rolled coils by Rs 500 a tonne. At least two steel makers, Essar Steel and Tata Steel, had raised the price of hot rolled coils by Rs 1,000 per tonne on 1 March 2007 in line with international prices. Steel makers had raised prices due to firm global prices.

Suzlon Energy plunged 7% to Rs 978.30, in a weak market, as the company's bid for REpower Systems at 126 euros a share has been approved by Germany's regulator of financial markets.

The scrip of Suzlon Energy had tumbled in early-February 2007 on concerns that the big-ticket acquisition will put a short-term strain on the Indian firm's financials. Suzlon's all-cash offer for REpower values the German firm at 1.02 billion euro, or 126 euros per share, which was about 20% higher than the offer by France's state-owned nuclear group, Areva, which made its offer on 5 February 2007.

R Systems International tumbled 17.93% to Rs 133, after the company reported a dismal financial performance for the fourth quarter ended 31 December 2006.

All BSE sectoral indices ended negative.

As per a research agency, India’s economy is expected to show robust growth in 2007-08, amidst concerns of overheating. India's economy grew at an average rate of 8.6% between 2003-04 and 2006-07. This is not only the strongest ever growth stimulus in India since independence, but also is in the league of the fastest growing economies of the world.

“A combination of global and domestic factors could moderate the growth momentum slightly in fiscal 2008. A mild slowdown in the US economy, relative to its 2006 performance, and a drop in the Chinese growth rate are key global influencers; however, growth momentum is more vulnerable to high inflation and overheating in the domestic economy,” the research agency added.

With GDP growth expected at around 8%, the fiscal targets for 2007-08 appear to be within reach. For 2007-08, it expects GDP growth to moderate to 8.4 - 9%, inflation at 5 - 5.5% and 10-year GSec yields at 7.8 - 8%. The INR/US exchange rate is expected to stay in the band of 44 - 45 in 2007-08.

US stocks plunged on Friday (2 March) following weak European and Asian markets as diminished investor appetite for risk capped one of the most punishing weeks for global equities in years. In volatile trade, the Dow Jones Industrial Average ended down 120.24 points, or 0.98%, at 12,114.10. The Standard & Poor's 500 Index ended down 16.00 points, or 1.14%, at 1,387.17, while the Nasdaq Composite Index ended down 36.21 points, or 1.51%, at 2,368.00.

Except MTNL, all Indian ADRs lost on the US bourses. Rediff and VSNL fell sharply and tumbled over 3%, while Tata Motors and Infosys Satyam, Wipro, HDFC Bank and ICICI Bank declined over 1-2% each. Patni Computers also ended with a loss, albeit a marginal one.

Weak global markets had spooked domestic bourses last week. The turmoil across the globe began with a steep slide in China. The yen bouncing back against the US dollar, a near 9% fall in Chinese stocks on 27 February 2007, followed by a 3.2% fall in Dow Jones Industrial Average on the same day, prompted some investors to cut carry trades, where they borrow cheap in Japan and invest in countries with higher yields. Hedge funds have been borrowing funds in yen due to low interest rates in the world's second largest economy, and redeploying them in other assets, a source of liquidity that has fueled speculation in the stock market and other asset classes.

FIIs have pressed substantial sales in the past few days in contrast to an intermittent surge in inflow in February 2007. As per provisional data, FIIs were net sellers to the tune of Rs 613 crore on Friday (2 March 2007), the day when the Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in four trading sessions, from 26 February 2007 to 1 March 2007. This was in contrast to a robust inflow of Rs 2909.90 crore in five trading sessions, from 2 February 2007 to 8 February 2007. The inflows had surged in early-February 2007, following an upgrade in India’s sovereign ratings by global ratings agency Standard & Poor's (S&P) on 30 January 2007.

FIIs were net sellers to the tune of Rs 47 crore in index-based futures on Friday. They were net buyers to the tune of Rs 91 crore in individual stock futures on the same day. Nifty March 2007 futures settled at 3,690.30 on Friday, a steep discount of 36.45 points over the spot Nifty closing of 3,726.75.

A section of the market believes that the present fall offers a good buying opportunity for long-term investors. From a lifetime closing high of 14,652.09 on 8 February 2007, the Sensex has lost 14.8%. Deutsch Bank, in a post-Budget report, states that Bhel, Infosys, Punjab National Bank and Grasim (a high-risk, high-return play) are its top picks.

UBS shares a similar view. ‘Post the recent correction, relative valuations don’t appear as expensive as they used to be. India is now the fourth most-expensive market in Asia compared to the most expensive tag it had about a month back’, UBS states in its post-Budget report. At current levels, the Sensex trades at 15.8 times 1-year forward EPS – an 8% premium over the long-term average of 14.6, the report adds.

Oil prices dropped sharply on Monday, as the market responded to continuing stock market declines and concerns about the world economy. Light, sweet crude for April delivery fell 78 cents, to $60.86 a barrel, in Asian electronic trading on the New York Mercantile Exchange. Last week's US inventories report showed stockpiles of gasoline and distillates, which include heating oil and diesel fuel, dropped by a larger amount than analysts had forecast. In other Nymex trading on Monday, heating oil futures fell 1.53 cent to $1.7529 a gallon, while natural gas prices rose 0.7 cent to $7.250 per 1,000 cubic feet.

Trading on the bourses has been extended by 45 minutes till 16:15 IST starting today due to sun outage. Daily trading time has been extended up to 19 March 2007. Trading on NSE will be stopped from 11:45 IST to 12:25 IST everyday during the same period.

Mirroring mixed cues from the global markets, the Sensex opened marginally lower at 13,139, and swung in and out of the positive zone in early trades. Aggressive buying in cement, metal and select auto stocks helped the index flare up to an intra day high of 13,254. Eventually, the index ended with a significant loss of over 2% at 12,886 while Nifty lost 85 points and settled at 3,726.

The NSE & BSE cash volumes were slightly lower compared to the previous day at INR 89 bn and INR 40 bn. The F&O volumes were also lower at INR 316 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 27-28% levels. The WPCR of Nifty Options increased to 0.91 compared to the previous day while the 5 day average is 0.89.

Outlook

In line with negative global cues especially the US markets, we expect the Nifty to open weak and remain volatile throughout the day. We recommend a cautious approach and advise investors to remain hedged on their fresh long positions. The global indices will continue to be in the nervous state in absence of any trigger until Friday when the US payroll data comes out.

The Nifty futures will remain in discount to the spot as fresh shorts continue to come in and markets expectations over dividend declarations in March after the new Dividend distribution tax policy. The Nifty IVs continue to rise as we see buildup in OI across 3700 call and puts.

Pharma, Telecom are expected to outperform the broader market.

Nifty has an immediate support at 3674 followed by 3644 which is its 200 EMA. The market may see some buying at these levels which will have a pullback on the Nifty. The resistance for Nifty is at 3783 and 3842.

A crash opening...hopefully the sun outage will act as the support in times like this. We have a natural cooling period between 11.45 am to 12.25 pm as the sun outage sets in beginning today till March 19. The festival of colours is over, and all we will see is red on the screen and faces of people. The bulls have their backs against the wall and there are hardly any bright spots around. If anything, bad news just doesn't appear to stop at the moment. Any bounce in the coming days should be used to hit the exit button for the short term. Staying in cash for better times could pay rich dividends in the medium to long term. Talking about dividends, companies are rushing ahead with Board meetings to decide interim dividend post the dividend distribution tax announced in the budget. Very soon, we will hear more of dividend yield stocks. When you hear pessimistic voices all around, slowly identify what best you could hold for the long term and buy it. After all they will be available at a huge discount.

Today, we expect a sharp selloff at the opening bell. US markets fell sharply on Friday. Asian markets this morning have been battered and bruised. The RBI's announcement of further monetary tightening could also play a role in driving down the sentiment. Valuations don't matter and suddenly even after a correction you will hear that the indices and stocks are still expensive. Liquidity, which has been the cornerstone of the four-year rally, seems to be deserting the bulls. This holds true for both Indian and foreign markets. We have more local troubles in the form of a Government and a central bank obsessed with inflation control. The RBI has unleashed a few more measures from its repertoire to deal with easy money sloshing around. Globally too, there are fears of the so-called "yen carry trade" unwinding and a possible (not probable as Alan Greenspan says) recession in the US.

All these factors combined makes fairly a heady cocktail and can potentially unsettle the markets further. FIIs have been heavy sellers of late and may continue to do so in the short term at least. Unless inflation cools off substantially and interest rates stabilise, we don't see them resuming their shopping spree anytime soon. Domestic investors do not have the wherewithal to hold the market. In short, this is perhaps the worst time that the bulls have ever had in recent memory. Things aren't going to improve soon. One would have to be patient.

FIIs were net sellers to the tune of Rs6.13bn (provisional) in the cash segment. However, in the F&O segment, they pumped in Rs1.5bn. On March 1, foreign funds offloaded Rs4.38bn from the cash segment. Mutual Funds were net sellers of Rs 291.2mn on the same day.

US stocks slumped further on Friday, capping the worst week on Wall Street since the first quarter of 2003. Worries abound over the possible unwinding of the so-called "yen carry trade" coupled with a decline in consumer confidence stoked fears about corporate earnings growth.

The Dow Jones declined 120.24 points, or 1%, to 12,114.10, the lowest since Nov. 10. The Nasdaq tumbled 36.21 points, or 1.5%, to 2368. The S&P 500 slid 16 points, or 1.1%, to 1387.17. It was the third fall for the broader index in four days.

The S&P 500 is down 5% since hitting a six-year high on Feb. 20. For the week, the S&P 500 was down 4.4%, the Dow lost 4.2%, while the Nasdaq dropped 5.9%. The Dow had its worst decline on a percentage basis since the end of March 2003. The S&P logged its worst weekly performance since late Jan. 2003 while the Nasdaq had its worst five-day percentage drop since August 2004.

European shares failed to retain early gains for the second session in a row on Friday. The French CAC 40 dropped 0.6% to 5,424.70 and the German DAX 30 slipped 0.6% to 6,603.32. The UK's FTSE 100 closed a fraction of a percentage point higher, at 6,116.20. The pan-European Dow Jones Stoxx 600 index lost 0.3% to 360.67.

Asian stocks plunged this morning, extending last week's global selloff. Toyota and BHP Billiton slid after consumer confidence declined in the US, Asia's biggest export market. The Nikkei in Japan was down 393 points at 16,824 while the Hang Seng in Hong Kong crashed by 511 points to 18,924. The Straits Times in Singapore slid 89 points to 2989 and the Kospi in Seoul dived by 23 points to 1391.

All benchmarks open for trading fell, except for China's Shanghai and Shenzhen 300 Index which rose 1.1%. Futures for the Standard & Poor's 500 Index in the US were recently 0.4% lower, while those for the Nasdaq Composite Index fell 0.6%.

Meanwhile, Chinese Prime Minister Wen Jiabao said that Beijing will take more steps to curb investment and lending, as the government tries to stop the world's fastest-growing major economy from overheating. The country will further regulate real estate, Wen told the annual meeting of the National People's Congress.

Separately, the yen rose to the highest level in almost three months against the dollar as Asian stocks extended last week's selloff, prompting investors to unwind riskier investments funded by borrowing in Japan. The currency also rose as a government report showed that companies investing at a faster pace than expected, adding to the Bank of Japan's case for raising interest rates. The Japanese currency has gained 9.6% in five days against the higher-yielding South African rand and 8.3% versus the New Zealand dollar as traders pared so-called carry trades, buying yen to pay loans.

In emerging markets, the Bovespa in Brazil dropped 2.6% to 42,369 while the IPC index in Mexico declined 1.2% to 26,321 and the RTS Index in Russia ended nearly flat at 1795.

Insider Trades:House of Pearl Fashions Limited: Funds under the Management of FMR Corp and its direct and indirect subsidiaries and Fidelity International Limited and its direct and indirect subsidiaries has pu8rchased from open market 351841 equity shares of House of Pearl Fashions Limited on 23rd Feb, 2007.

Market Volumes: The turnover on NSE was down by 12% to Rs89.61bn. BSE Capital Good index wasw the major loser and lost 3.05%, BSE Technology index (down 2.36%), BSE Oil & Gas index (down 2.30%), BSE Bank index (down 2.08%) and BSE FMCG index (down 1.68%) were among the other major losers.

Policy InitiativesNon-extension of STP benefits beyond 2009 - Negative especially for all smaller & medium sized IT companies which will be forced to find relief under the SEZ scheme now.

MAT @ 11.2% on adjusted book profits extended to income u/s 10A & 10B – Negative for all the players as effective tax rate would increase (with MAT applicable on STP units) but impact could be severe for medium & smaller players having all or majority units under STP scheme.Effective Tax Rate (ETR) to go up for almost all companies as STP units u/s 10A & 10B would be taxed at 11.2% now for FY08 & FY09 (till the sunset clause gets over in 2009). Beyond FY09 these units will come out of the tax holiday and would pay normal tax (full tax) on profits. MAT paid over the next two years would be allowed to be set-off post FY09 thereby lowering ETRs of those years to that extent.

Inclusion of ESOPs under the FBT net (rate & method of calculation not disclosed) - Negative for all players.

Almost doubling of e-Governance outlays both at the Centre and State level – Positive for companies like Vakrangee Software (Not Rated).

Impact – Negative“Double Whammy!!!” – EPS estimates of FY08 and FY09 to be worst hit by combination of taxability on STP unitsand FBT on ESOPs.

Outlook We believe the post Budget battering of 5-10% for most of the sector stocks has opened up attractive buying opportunities into the large cap IT space. Though revising our 12-month target price downwards in line with reductionin EPS forecast, we remain buyers for the Top 5 companies considering reasonable to significant upside potential from current prices. Amongst other stocks, we downgrade Infotech to SELL in the light of limited medium term priceappreciation potential while we maintain HOLD on Allsec.

The fall continued on D-Street as bulls again struggled to sustain gains. Weak global cues compelled the markets to open in negative territory. The markets tumbled down the line after accumulating over 70 points in the morning session, Even lower inflation figures were unable to aid the markets to hold on to their gains as heavy sell off was witnessed wide across the board. BSE Capital Good and Technology index led the downfall as both indices fell over 2% dragging the benchmark index to hit a low of 12698.79. Finally, the 30-share benchmark Sensex slumped 273 points to close at 12886. NSE Nifty fell 84 points to close at 3726.

ITC declined over 3.5% to Rs166 on concern of Levy of VAT on Tobacco. The scrip touched an intra-day high of Rs172 and a low of Rs165 and recorded volumes of over 1,00,00,000 shares on NSE.

ABG Shipyard surged over 6% to Rs365 after reports stated that the company has secured rig orders worth Rs350mn. The scrip touched an intra-day high of Rs371 and a low of Rs339 and recorded volumes of over 87,000 shares on NSE.

Metal stocks also ended lower, the index lost 1.21%. SAIL lost 2.5% to Rs106, Tata Steel slipped 1.7% to Rs443, Sterlite Industries was down by 1.5% to Rs470 and Hindustan Zinc declined over 3% to Rs603.

The jitters in the global markets likely to weigh on the local indices. The U.S. government charging employees of major Wall Street banks, with securities fraud and other charges for insider trading. The effects of the same can be seen in the Asian markets. The market may open weak on subdued Asian indices in the morning trades and Friday's fall may put pressure on the investors' sentiment and thereafter could exhibit volatility during intra-day trades. Among the domestic indices, the Nifty has a support at 3700, while on the upside it could edge higher to 3740. The Sensex has a likely support at 12800 and may face resistance at 13000.

US indices ended weak on Friday. While the Dow Jones dropped by 120 points to close at 12114, the Nasdaq ended 36 points lower at 2368.

Except MTNL all the Indian ADRs were losers on the US bourses. Rediff and VSNL fell sharply and tumbled over 3% while Tata Motors and Infosys Satyam, Wipro, HDFC Bank and ICICI Bank declined over 1-2% each and Patni Computers ended with a marginal loss.

Crude oil prices eased, the Nymex light crude oil for April delivery falling by 36 cents to close at $61.64. In the commodity space, Gold hitting the 6-week low on widespread selling, while the Comex gold for April series declined $21 to settle at $644.10 a troy ounce.

Weakness in global markets and continued FII sales may pull the market down further today. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 1.5% to 2.8% on Monday (5 March). Chinese market was the lone survivor of Asian fall. The Shanghai Composite was up 0.5%

US stocks plunged on Friday (2 March) following European and Asian markets lower as diminished investor appetite for risk capped one of the most punishing weeks for global equities in years. In volatile trade, the Dow Jones industrial average ended down 120.24 points, or 0.98%, at 12,114.10. The Standard & Poor's 500 index ended down 16.00 points, or 1.14%, at 1,387.17, while the Nasdaq composite index ended down 36.21 points, or 1.51%, at 2,368.00.

It was the weak global markets which spooked domestic bourses last week. The turmoil on the global markets began with a steep slide in China. With the Japanese currency yen bouncing back against the US dollar, a near 9% fall in Chinese stocks on 27 February, followed by a 3.2% fall in Dow Jones Industrial Average on the same day, prompted some investors to cut carry trades, where they borrow cheaply in Japan and invest in countries with higher yields. Hedge funds have been borrowing funds in yen due to low interest rates in Japan and redeploying them in other assets, a source of liquidity that has fueled speculation in the stock market and other asset classes.

FIIs have pressed substantial sales over the past few days in contrast to an intermittent surge in inflow in February 2007. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March, the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in four trading sessions from 26 February to 1 March 2007. This was in contrast to a robust inflow of Rs 2909.90 crore in five trading sessions from 2 February to 8 February. The inflow had surged early February following an upgrade in India’s sovereign rating by global rating agency S&P on 30 January 2007.

FIIs were net sellers to the tune of Rs 47 crore in index-based futures on Friday. They were net buyers to the tune of Rs 91 crore in individual stock futures on that day. Nifty March 2007 futures settled at 3690.30 on Friday, a steep discount of 36.45 points over spot Nifty closing of 3726.75

Trading on the bourses has been extended by 45 minutes till 16:15 IST starting today due to sun outage. The extended trading hours are till 19 March. Trading on NSE will be stopped from 11:45 IST to 12:25 IST daily during this period due to the sun outage.

A section of the market believes that the current fall offers a good buying opportunity for long-term investors. From a lifetime closing high of 14652.09 on 8 February, the Sensex has lost 12%. It is down 6.5% in calendar 2007 so far. Deutsch Bank in its post budget report states that Bhel, Infosys, Punjab National Bank and Grasim (a high-risk, high-return play) are its post budget top picks.

UBS shares a similar view. ‘Post the recent correction, relative valuations don’t appear as expensive as they used to be. India is now the fourth most expensive market in Asia compared to the most expensive status that it used to have about a month back’, it states in a post budget report. At current levels, Sensex is trading at 15.8 times one year forward EPS – an 8% premium over long term average of 14.6, the report states.

On the day after the Feb. 27 Chinese stock market meltdown, the rest of Asia continued to feel the aftershocks. Markets in the region tumbled Feb. 28, after investors booked profits from the bourses' recent strong rally, shaken by the sharp drop in Chinese stocks the previous day.

Though the next-day sell-off led many bourses to suffer their sharpest losses since September, 2001, these declines came in the first half-hour of trading, and most came back from session lows. Chinese stocks actually rebounded on Feb. 28, with the Shanghai index coming back 3.9% after plunging 8.8% a day earlier in its biggest daily drop since 1997.

Though this correction from rich stock valuations might potentially go further, strong fundamentals continue to make the region attractive to investors. Indeed, Asian currencies remained firm in the face of the equity sell-off, with the Chinese yuan strengthening to a new high vs. the U.S. dollar during the two terrible days, and the Japanese yen pulling back only slightly on Feb. 28—after its biggest gain in 19 months vs. the U.S. dollar on Feb. 27—to its strongest level since mid-December.

The global equity sell-off was aggravated by a warning Monday evening from former Federal Reserve Chairman Alan Greenspan about potential vulnerability of the U.S. economy to a downturn. The world economy would no doubt also be vulnerable to fallout from any consequences from the stock sell-off for the Chinese economy, which, along with the U.S., remains one of the two key engines of global growth.

However the Chinese economy has sustained notably steady growth over the past two decades in the face of periodic sell-offs in its stock market. We still expect solid world growth in 2007, leaving the strongest four-year growth stretch in our own dataset—dating back to 1984.

Here is Action Economics' look at how Asian markets fared the day after the Great China Sell-Off:

China: Shanghai's stock market rebounded 3.9% Feb. 28, after it plunged 8.8% the previous day, its biggest daily drop since 1997. Profit-taking by local funds snowballed on Feb. 27 after the Shanghai index closed above 3,000 for the first time on Feb. 26. Those gains had brought the cumulative increase so far this year to 14% on top of the 130% gain in 2006, making Shanghai one of the best-performing markets in the world. Institutions scrambled to lock-in gains and raise funds to pay dividends in March. Turnover in Shanghai A shares ballooned to an all-time high.

Traders attributed the plunge to hectic speculation, some noting how prices had been bid up on hope for some market-friendly policies from the National People's Congress session in Beijing in early March, with much of the potential good news already priced into equities.

China's government has introduced several measures over the past year to cool an investment boom. However, there was little in the way of actual major news on Feb. 27, and the fundamental outlook remains for continued robust GDP growth in 2007 near the average of around 10% during the past four years through 2006.

Japan: The Nikkei 225 stock average may have been set for its own correction, having gained 6.9% in 2006, and another 5.7% during this year through Feb. 26 to reach its highest level in nearly seven years. It eased 0.5% on Feb. 27, and was down as much as 4.1% on Feb. 28, before finishing the session off by 2.85%.

Fundamentals are supportive of the recent uptrend in stocks, with the Japanese economy growing moderately and in its best shape in over 15 years, while corporate profits are now being boosted by a competitive yen valuation vs. other major currencies.

Hong Kong: The Hang Seng Index rose 34.2% in 2006, and had been up another 2.7% during this year through Feb. 26, before falling back 1.8% on Feb. 27. It declined as much as another 3.8% on Feb. 28, before finishing the session down 2.5%.

Consistent with the stock-market rally last year was Hong Kong GDP growth at 6.8% in 2006, after 7.3% in 2005, with growth expected to continue around 5.0% in 2007.

Singapore: The market is understandably jittery after the benchmark Straits Times Index soared 27.2% in 2006 and had climbed another 10.8% so far this year through Feb. 26. It fell back 2.3% on Feb. 27 and slid as much as an additional 6.0% on Feb. 28, before finishing the session lower by 3.7%.

Like Hong Kong, the Singapore economy is enjoying robust growth, with GDP rising 7.9% in 2006 after 6.4% growth in 2005. It's expected to moderate only somewhat to 5.5% growth in 2007.

South Korea: The benchmark KOSPI index was one of the more lackluster performers in the region in 2006, when it rose 4.0%, followed by a cumulative 2.5% rise so far this year through Feb. 26. It fell back by 1.0% on Feb. 27 and was off as much as another 4.2% on Feb. 28, before scaling back its loss to 2.6%.

Nonetheless, the backdrop remains favorable for South Korea, as GDP growth—at 5.0% in 2006 and projected at 4.5% in 2007—is more than respectable by world standards.

India: The Mumbai Sensex Index was one of the world's star performers in 2006, soaring 46.7%, in the face of GDP growth at around 9.0% that's expected to moderate to only about 8.0% this year. The index had fallen back 1.0% during 2007 through Feb. 26, perhaps as accelerating inflation has raised fears of central-bank tightening. The index slipped 1.3% on Feb. 27 and was off as much as 5.0% on Feb. 28, before finishing lower by 4.0%.

Thailand: The Stock Exchange of Thailand Index (SETI) has been a laggard performer amid the political turmoil of the past year. It declined 4.7% in 2006, more than accounted for by the sell-off upon the announcement of capital controls in mid-December, but had rebounded by 1.3% so far this year through Feb. 26, despite the additional shock of a New Year's Eve Bangkok bombing.

The SETI slipped 0.7% on Feb. 27, and was off another 2.0% Feb. 28, when it received an additional shock with the surprise resignation of its Finance Minister. It slipped as far as 2.8% for the day, but then came back somewhat unexpectedly to trim its loss to 1.0% by the end of the session.

Australia: The S&P ASX index in Australia, typically commodity-driven, gained 19.0% in 2006 and had gained a further 6.6% increase in 2007 through Feb. 26. It slipped 0.8% on Feb. 27, and was down as much as another 3.5% on Feb. 28, before finishing down 2.7% for the day.

The Union Budget seemed just the excuse the market needed to explain dimming investor sentiment. A few weeks ago, the 15000 peak looked very much within reach, but rising inflation and interest rates were the clouds gathering on the horizon. Two weeks later, the Sensex corrected 13% from its highs; it was down around 6% in the past week and there is gloom on the Street once more.

However, there’s some good news after a long time. Headline inflation is down at 6.05% and if it falls further this week, some of the pressure on the market will ease. Growth continues to be strong with the economy growing at 9% for the current year and it is expected to clock 9.2% next year.

All that has changed is the absence of a clear catalyst for the market, or ‘price triggers’, as market players prefer to call them. The Budget was a major potential trigger that backfired. An overbought market did not help matters much.

This is the opportunity that you may have been saving up for. Now is the time to start nibbling on some stocks in the market. There are some good stories out there waiting to be picked.

We stress on bottom-up stock-picking in a market that’s largely been hit on macro concerns, that too, global. The days of buying into a sector are possibly over, as investors who have done that, like in real estate stocks, have borne the brunt of the fall. It makes sense to cherry-pick your stocks well.

Some contrarian stock-picking won’t hurt. As an illustration, Hero Honda is under siege; its margins are falling and it’s losing share to Bajaj Auto. With a low P/E of 11 and its stock price near its 52-week low, is the worst over for the stock?

Meanwhile, Indian Bank was listed above its IPO price even in this market, indicating that demand for the stock remains strong. The quality of management and its healthy operating parameters still inspire investor confidence. Are there more such stocks in the market?

Hindustan Zinc (HZL) has corrected by about 25% since the start of the year. The fundamental zinc story remains strong as demand for China is forecast to be firm. Will HZL’s share price recover at some time? These are the questions for which you need to find answers to discover investment ideas. The message is that things have changed in the world, and that includes the price of equity.

After a healthy 18% YoY rise during the nine months ended December ’06, the industry’s motorcycle sales growth moderated to 12% in January ’07. Hero Honda, which had reported a better-than-industry growth of 19% in January ’07, is also witnessing weakness in retail sales. This has led to an inventory build-up estimated at over one month of sales.

Considering build-up of inventory, as well as weak retail demand, CLSA expects Hero Honda may resume discounting. In early ’06, with market share under pressure, Hero Honda had initiated a Rs 1,000 discount (3-4%) on its motorcycles.

During the festive season (October-November ’06), the company had offered an aggressive incentive scheme (‘mobile on mobike offer’). These discounts were withdrawn in January ’07 and the company raised its prices. Hero Honda has already underperformed the market by a sharp 41% over the past one year, with a dip in earnings.

However, valuations, at 14.3x FY08CL earnings, are still not compelling, given lacklustre volume growth, potential downside to earnings from continuing margin pressures and entry of HMSI (Honda Japan’s 100% subsidiary) in the 100cc segment. Only higher returns on its cash surplus can provide an earnings upside.

During CY06, the company acquired Pinewood (Ireland) and Dumex India (along with two heritage brands, Protinex and Farex) in the European and Indian markets, respectively which helped the company to post 22.4% growth in sales.

During CY06, the domestic market reported a growth of 28.3% to Rs 676.4 crore compared to overall exports, which grew by 18.9% to Rs 1,052.7 crore. For Q4 CY06, Wockhardt registered a growth of 43.8% and 19% in sales and net profits to Rs 526.5 crore and Rs 87.2 crore, respectively, while the company registered a growth of 22.4% in net sales to Rs 1,729 crore in CY06.

But net profit fell 6.5% to Rs 241.2 crore. The decline in profitability was on the back of Rs 60.2-crore write-off booked by the company for its US business. Adjusting for the same, growth in net profit during the period was around 16.9%. At the current market price, the stock trades at 15.4 times CY06 and 9.2x CY07E earnings.

Unlike its peers, the company has focused more on its inorganic growth initiatives to ramp up its presence in regulated markets. Going forward, inorganic growth indicatives will continue to be a key growth driver for the company. However, at current valuations, the risk-reward in the stock is highly favourable. At the targeted price of Rs 550, the stock will trade at 14.8x CY07E earnings, at 20-30% discount to its large-cap peers.

The key concerns for IDFC’s profitability — poor visibility on fee income and non-scalability of high proportion equity gains — have been resolved, with new initiatives on its $5-billion fund and excellent performance by its first PE fund (unrealised gains of $250 million from three partial exits).

By FY09E, the proportion of fee income in non-fund income is expected to increase to 60%, from 40% in FY07E — thus, gradually replacing the volatile equity gains component of non-fund income.

The contraction of spreads on IDFC’s project finance business is an economic reality, given the strong upward bias in interest rates and competition from commercial banks. However, sustained robust demand in the infrastructure sector — gross disbursals are expected to grow by 23% CAGR over FY06-09E — will result in healthy NII growth of 34% CAGR over the period.

ASK Raymond introduces earnings estimates of Rs 7 per share (20% YoY growth, RoE of 20%) in FY09E, and upgrades its recommendation to ‘buy’ (from ‘hold’) with a 12-month target price of Rs 107 per share at P/ABV multiple of 3x for FY09E (increased from P/ABV of 2.5x for FY08E)

Reliance Energy, through its 50% holding in REGL, has bought a 100% stake in the Rosa project. This 1,200 mw project will be implemented in two phases of 600 mw each, entailing a total investment of Rs 5,500 crore.

This project will be funded on a debt-equity ratio of 80:20, requiring an equity investment of Rs 1,100 crore, of which, Rs 550 crore will be invested by Reliance Energy, including Rs 275 crore as its share for the first phase of the project. During Q3 FY07, Reliance Energy increased its stake in RETL to 51%, making it a subsidiary.

This company currently has one Rs 1,800-crore project, that of Western Power Grid. Reliance Energy will contribute Rs 275 crore as its share of equity investment in RETL for this project over three years. Emkay has valued this project at Rs 9 per Reliance Energy share, which is the equity investment in the company.

Even though RETL is the L1 bidder, it has not yet been issued the letter of intent (LoI) and has not achieved financial closure. REL is scouting for power generating assets and coal mining operations in global markets. Any such buys will lead to higher returns from operational assets, enhancing its returns. Emkay has valued the company on a sum-of-the-parts basis.

The Budget has left investors watching a market that seems decidedly nervous. Budgets come and go, but smart investing does not change due to one event. What is central to the process is to review one’s portfolio and if stocks are available at good prices, or their growth story is intact, consider including them in your kitty.

ET Investor’s Guide brings you a cross-section of companies carefully chosen by its analysts. The stocks have been selected from industries such as banking, petroleum, engineering and FMCG. We have selected stocks that have either directly gained from the Budget, or look attractive despite the negatives.

The fall in the prices of these stocks thus translates into an opportunity. Since these are not riskless investments, we have attempted to capture the risk-return element too. So, you can choose the stocks according to your risk-return appetite. Also, bear in mind that these shares can slip further as nervousness builds up. Keep spare cash handy, so that you can average out your investments if that happens.

AIA Engineering

AIA Engineering makes abrasives, operating in a niche segment and commands significant advantage in terms of engineering and metallurgical capability. Its share price has doubled in one year, against 22% return for the Sensex. Its profit grew by 35% during FY04-06 and 88% for nine months till December ’06.

Since most of its customers are industrial (power, mining) the pricing is mostly on a cost-plus basis, with a nearly constant operating margin. Currently, share of exports in total sales is about 50%.

Outlook for the user industry looks bright with infrastructure sectors growing well. Large projects are under implementation in roads, ports and power sector. Further, since 70% of sales are from replacement demand, uncertainty in sales is significantly low.

The company’s 65,000 mt capacity is running at 100% utilisation and the new 50,000 mt capacity addition will give it additional revenue of about Rs 250 crore during FY08. Phase II expansion of equal capacity will be over by ’07-end.

Since the new facility is an export-oriented unit, it will enjoy income-tax exemptions for FY08 and FY09. Its current order book is Rs 370 crore, up from Rs 240 crore over last year, with an average execution time of eight months, sales may reach about Rs 550 crore in FY08. Net margin in FY07 (nine months) is 15%, which is attractive and is attributable to its engineering capability.

Valuations: Its current P/E is about 40, which is reasonable, considering the outlook in the near term. With commissioning of new capacity and benefits of export-oriented unit, margins are expected to improve in FY08.

Asian Paints

Asian Paints will benefit slightly from the cut in duty on imported items, as prices of key raw materials like solvents and pigments vary, based on landed costs of imported products. The company’s share price has declined by 13% in the past one month.

The company sells paints to the decorative and industrial segments, while it sells automotive paints through its JV with PPG. This venture recently acquired the automotive refinish business of ICI India for Rs 52 crore, adding Rs 50 crore to the group’s turnover.

The Asian-PPG JV is expected to post 20% growth in FY07 sales to Rs 340 crore. It could grow at the same rate in FY08, given strong growth in its user industries. Asian Paints’ sales and profit growth in the current year have been very healthy.

The company is a key beneficiary of growth in the construction, industrial and automotive sectors. Since the structural story of the Indian economy is still robust, demand for the company’s products should continue to remain strong.

It has recently added a new plant for its industrial products, which is likely to contribute to growth in FY08. A cause for concern could be if rising interest rates cause a slowdown in construction, particularly in the real estate market.

Valuations: While earnings growth in FY07 is over 30%, justifying the P/E multiple of 25 times, it could slow a bit in FY08. Still, the company is a worthwhile addition to investors’ portfolio, as it is de-risked to the extent it targets industrial, decorative and automotive sectors.

Bajaj Auto

Bajaj Auto is best placed to make the most of the bike market, which is growing at a healthy 15%. In FY07 so far, total two- and three-wheeler sales have risen by 22%, against the industry growth of 17%. This above-market growth is expected in ’07-08 too.

The company’s new plants will be operational in early-April, easing supply constraints and enabling its share to go up from 34%. Sales of the new 200cc Pulsar bike will also contribute to growth in FY08.

Bajaj Auto’s models have lower risk compared to Hero Honda, its biggest rival. Its overall exports grew 83% to 4 lakh units in April-February ’07. The aggressive expansions in Indonesia, Sri Lanka and Latin America have put Bajaj Auto in a position to ride out blips in domestic sales.

Operating margins have been under pressure during the past five quarters — they fell from 18% in December ’05 quarter to 14% a year later — but analysts believe margins have bottomed out now. Moreover, Bajaj has a product mix that is well-tuned to market demands and is driving sales.

Even without the new variants and styles of FY07, it realised Rs 35,612 per bike in ’05-06, up 4.8% from the previous year. In FY08, the 200cc bike is expected to drive up realisations. That, along with economies of scale, will help ride out higher input costs.

Valuations: At a P/E of 21.1 on March 2, ’07, Bajaj Auto was still expensive compared to Hero Honda (13.6) and TVS Motors (16.9). However, given its overall long-term prospects, the stock is still a good buy, specially at lower levels. The company’s demerger, when it takes place, is a positive earnings trigger.

Bank of India

Bank of India (BoI) is among our top picks in the PSU banking space and is now quoting at attractive valuations. As of December 31, ’06, BoI had total assets of Rs 130,000 crore and total advances of Rs 93,932 crore.Net interest margins (NIMs) were at the higher end of the peer group, at 3.7% for its domestic operations.

Consolidated NIMs were lower at 3.21% on account of lower profitability in its international lending. BoI could see sharp improvement in RoE from 16%, led by an increasing share of low-cost funds in the deposits portfolio. This could result in an improvement in NIMs.

Low-cost funds were around 41% as of December ’06, posting a growth of 17% over the previous corresponding period. Current and savings account (CASA) growth could be much higher in FY08 and FY09 as it will benefit from core banking implementation.

BoI has already brought around 80% of its business under core banking. Yields have also moved up on higher lending to 7.96%. Margins could be impacted to some extent due to higher funding costs since the start of Q4 FY07.

To combat higher costs, BoI has already hiked interest rates and will receive further aid in the form of interest on cash reserve ratio (CRR) balances. This will help BoI to maintain its current level of profitability. With government holding at 70%, the bank has enough room to fund growth through further dilutions.

Valuations: BoI is trading at 1.49x book and 8.6x its trailing 12 month earnings, offering new investors an attractive entry point, and giving existing investors an opportunity to consolidate their holdings.

GSPC

Gujarat State Petroleum Corporation (GSPC) will be a beneficiary of the 80 I (A) exemption as profits on cross-country gas pipelines have been exempted from tax for 10 years. Though details are not out, it’s quite possible that new pipelines will get the benefit.

Then, GSPC is based in Gujarat, which is expected to see a surge in natural gas consumption. The additional supply will come from capacity additions by Petronet LNG and Shell LNG, which will bring in additional 7.5 million tonnes (mt) per annum (30 million cubic metres/day) of natural gas.

GSPC is an infrastructure provider, so it doesn’t have to find customers for gas or supplies. It owns the infrastructure and collects the fees. So, any new gas supply coming into Gujarat will lead to some business for the utility.

Demand for gas is already there and additional supplies are also coming in. GSPC is currently transporting 18 mmscmd of gas, against 14 mmscmd in the previous quarter and 12 mmscmd in Q4 FY06.

Volume increase doesn’t have a 1 to 1 correlation with revenues since distance is also a factor. But the company has seen consistent growth in earnings. At current volume and operating margins, EPS could be Rs 0.70-75 for Q4 (Rs 2-2.1 for FY07).

Valuations: FY09 earnings could be up sharply because the company has an agreement with Reliance to supply 11 mmscmd of gas to the Jamnagar refinery. Trailing four quarter P/E multiple looks steep at 30, but margins were depressed in the first half of the year due to one-time expenses. Though the downside is limited, the stock is unlikely to be a multi-bagger either. India Cements

Contrary to general perception, India Cements could be a major beneficiary of the dual excise duty slapped on cement. Post-budget, its duty outgo will decline by Rs 46.5 per tonne to Rs 360.50 per tonne. With major cost heads unchanged, its operating and net profit margins will rise.

Its operating profit is expected to rise by Rs 3.3 crore during the March ’06 quarter and Rs 38 crore during the whole of FY08 due to a lower duty outgo. This could push-up its earning per share (EPS) by as much as Rs 1.70 next fiscal.

The budget has proposed to cut the excise duty to Rs 350/tonne from 400/tonne earlier, if cement is sold below Rs 190 per 50 kg bag. If MRP is higher, it will be taxed at Rs 300/tonne.

To avail of the cut, cement makers have to reduce their net sales realisation to Rs 2,490/tonne, against Q3FY07 average of over Rs 3,100/tonne. But during December ’06, India Cements’ net cement sales realisation was Rs 2,341/tonne, much lower than the threshold limit needed to avail of lower duty.

This not only reduces its duty outgo but also gives it head room to further increase its sales realisation without incurring additional excise duty.So, investors should use the recent correction in India Cements’ stock price as a buying opportunity. In the past month, the stock declined by 29% against an 8% fall in the Sensex.

Valuations: At Rs 168.6, the stock is valued at 11 times its trailing EPS. This is attractive compared to ACC’s 14.7 and Gujarat Ambuja’s 11.4, even though the latter are more vulnerable to pressure on cement prices.

ITC

ITC’s non-tobacco FMCG business will get a boost from the excise duty exemption on food mixes, including instant mixes. The ‘Ready to Eat’ segment under the ‘Ashirwaad’ brand will benefit in terms of operating margins due to the excise duty and customs duty exemptions on food processing machines.

The ‘Sunfeast’ biscuit range will get an incentive to launch variants at lower price points to expand its rural base, aided by excise duty exemption for packs priced lower than Rs 50/kg. The customs duty cut on plastics and other packaging material will boost operating margins as ITC spends a lot on packaging and branding.

The agro business will benefit from sops provided to the agricultural sector. Expansion of integrated oilseeds, oil palm, pulses and maize development programmes may boost supply of oil seeds, in particular soya seeds, which are one of the biggest raw materials for ITC’s soya division.

Its e-choupal initiatives may also benefit from higher allocation to e-governance initiatives. ITC’s hotel division will gain from increase in focus on tourism.

But, excise duty hike on cigarettes may hit the tobacco unit. Passing on additional costs to consumer for two successive years could hit topline growth, which is currently at 12%.

Past trends indicate the possibility of a slowdown in cigarette volumes after 3-4 years of robust growth. But, considering the GDP growth outlook of 9-10% and favourable demographics, ITC may sustain 8-10% topline growth in this division.

Valuations: The stock is trading at a price-earning multiple (P/E) of 24x, which appears slightly cheaper compared to other FMCG stocks.

Punjab National Bank

Punjab National Bank (PNB) is our other preferred pick in the banking space. It is the third-largest bank in the country. PNB’s margins are among the best in the industry; its net interest margins (NIMs) stand at 4.21%.

Higher margins are mainly due to the strong low-cost franchisee of the bank, which is around 43% of its deposits portfolio. PNB’s core business performed well in Q3 ’07, with a 21% rise in net interest income (NII).

Higher NII was led by sharp improvement in yields to 9.11%, supported by strong asset growth of around 30%. Non-interest income (mainly fees) has also moved up sharply, driven by gains on the commission and exchange front, leading to an overall 21% growth in other income.

Operating expenses declined by 10%, adding to the bottomline. However, net profit was capped on account of higher provisioning requirements. Asset quality is robust with net non-performing assets (NPAs) at just around 0.43% of total portfolio.

PNB has sufficient leeway to fund future growth, with government holding at around 57%. It is looking at diluting the government’s stake further to beef up its capital. With a credit deposit ratio of 67%, PNB has more than sufficient leeway to grow its advances without diluting margins.

Valuations: PNB has corrected steeply from its highs and offers investors a good entry point. It is trading at 1.3x book and 7x its trailing 12-month earnings.

If last week was Wall Street's big dive, this week will be where it tries to figure out how deep the water is.

Stocks are in for a shaky ride, now that the past five sessions have erased all of this year's gains and then some. Investors in the coming days will be grasping at any and all signals, both domestic and foreign, to see if the market can find a foothold.Most market watchers now agree that last week's plunge doesn't signal disaster. The stock market, which pushed the Dow to 31 record highs since early October, had been climbing at a pace that was arguably more extraordinary than the depth of Tuesday's drop. Chatter about a big correction had been circulating the floors of stock exchanges for months -- it just came as a shock that so much of the correction happened in a single day.

What the sages are split over is whether stocks have hit a short-term dip or entered a bear market, so they'll be closely watching this week's economic data. Many say there's no reason that stocks shouldn't resume their trek into record territory in the coming months, given that little has changed fundamentally in terms of the average consumer, corporate earnings, manufacturing activity or inflation. But others argue that stocks had inflated way too much given the torpidity of many areas of the economy, and that there is still more air to be let out.

The Dow Jones industrials are down 3.3 percent on the year, the Standard & Poor's 500 index is 4.4 percent lower, and the Nasdaq composite index is down 5.9 percent.

If the Labor Department's employment data on Friday shows stability in U.S. jobs -- previously a big market driver, as it suggests consumers will keep spending money -- the stock market has a better chance of regaining its footing. At the end of last week, the market was expecting February nonfarm payrolls growth to slip to 100,000 from 111,000 in January; February's unemployment rate to hold steady at 4.6 percent; and hourly earnings to inch up 0.3 percent, more than January's 0.2 percent. Other reports, including a snapshot of the nation's service economy and the U.S. trade balance, will also be closely watched.

No matter where the data falls, however, Wall Street is anticipating choppiness this week as some investors flee from stocks to the traditionally safer Treasury market, while others swoop in to scoop up bargains.

And because last week's plunge was triggered in large part by a sharp decline in Chinese stocks, which also set off drops in other Asian markets and European markets, U.S. investors will undoubtedly be looking abroad to see if other countries' stocks are recovering or collapsing.

OTHER ECONOMIC DATA IN THE FOREFRONT

The Institute for Supply Management on Monday will report its index on the services economy in February. The market is expecting a reading of 57.5, down slightly from 59.0 in January.

Also Monday, St. Louis Fed President William Poole will speak on inflation and economic growth in Santiago, Chile.

On Tuesday, the market expects the Labor Department to revise its fourth-quarter productivity growth measure to an annual rate of 1.7 percent from a previous 3.0 percent, and the Commerce Department to report a 4 percent slowdown in January factory orders. Factory orders include the previously reported durable goods -- one of the many disappointing factors contributing to last Tuesday's freefall -- plus non-durable goods orders.

Meanwhile Tuesday, the National Association of Realtors reports January's pending home sales.

On Wednesday, investors will read the Fed's beige book, which describes economic conditions in regions around the country. The Federal Reserve's monthly measure of consumer credit comes Wednesday as well, and is expected to be $7 billion for January, up from December's $6 billion.

On Thursday, the nation's retailers report their sales for February.

And Friday will be a data-heavy day, bringing the jobs report and the trade balance for January. The market is forecasting the trade gap will come in narrower at $60.0 billion from $61.2 billion in December. Also, January wholesale inventories are expected to show a 0.1 percent decline, less than December's decrease of 0.5 percent.

AND IN THE BACKGROUND, A TRICKLE OF EARNINGS

Earnings season is mostly over, and corporate growth in the last quarter of 2006 came in at around 10 percent -- slower than in previous months, but still healthy. Investors haven't been too occupied lately with individual company news, but they shouldn't discount the possibility of a big earnings surprise rattling the markets.

BJ's Wholesale Club Inc. and Costco Wholesale Corp. release their earnings Wednesday and Thursday, respectively. The market is expecting BJ's to report profit of 66 cents per share. BJ's closed at $31.93 Friday, at the upper end of its 52-week range of $25.18 to $34.04.

Costco is also expected to report profit of 66 cents per share. Costco closed at $55.75 Friday, at the upper end of its 52-week range of $46.00 to $58.70.

Meanwhile, analysts predict homebuilder Hovnanian Enterprises Inc. on Thursday to report a loss of 59 cents per share. Hovananian closed at $30.75 Friday, in the middle of its 52-week range of $24.79 to $47.80.